As FCC Chair Martin resigns, he leaves controversial legacy

Introduction

Among the legions of predictable, starched-shirt regulators that populate Washington, outgoing Federal Communications Commission Chairman Kevin Martin has been a conundrum.

Martin, who announced this week he will step down from the commission on inauguration day, is a self-described free-market Republican. Yet he has nevertheless used his considerable power to push consumer-friendly policies that angered cable television companies, like “a la carte” pricing that would allow customers to select and pay only for the channels they really want. In addition, he pried open wireless networks, protected Internet users from unequal treatment by service providers, and paved the way for a new generation of wireless Internet devices.

But Martin has also toed the deregulatory GOP line by backing major corporate mergers, removing regulations on giant telecommunications companies, and enforcing strict limits on racy content on television.

While those positions may seem contradictory, telecommunications veterans say there is a common thread — he has fought consistently to open markets to new competitors. That may be the most important legacy of Martin’s almost four years as chairman. Whether anyone remembers it, though, is another question.

What will be remembered is Martin’s controversial bedside manner. A congressional report depicts Martin as running the FCC in a Machiavellian fashion, fostering a climate of “deception and distrust.” The report blasted the chairman for creating a “climate of fear” at the agency and withholding information from other commissioners and staff to further his agenda. In his almost four years at the helm, in fact, the chairman managed to aggravate a remarkable cross-section of politicians, consumer advocates, industry lobbyists, and agency employees.

“People,” said Martin, “have a tendency to remember all the things they are mad at you about.”

The FCC chairman traditionally leaves the commission when a new president takes power. Martin announced he would resign at his final meeting Thursday, and allowed his young son Luke, 3, to bang the gavel for him.

Martin’s successor, according to people briefed by the Obama transition team, will be Julius Genachowski, a technology entrepreneur and former Harvard classmate of Obama’s. Genachowski’s first order of business will be overseeing the transition of the nation’s broadcasters to digital broadcasting on February 17. President-elect Obama wants to delay the switch.

Martin will take a position at the Aspen Institute, a nonprofit leadership training organization and think tank that has become popular place to work for former FCC chairmen, such as Michael Powell and William Kennard.

Contrary from the beginning

Martin’s contentious tenure has been full of surprises. His habit of occasionally siding with the two Democrats against his fellow Republicans on the five-member commission could hardly have been predicted, given his mainstream GOP background. The 42-year-old North Carolina native came to the commission with both political connections and hands-on experience in the arcane world of telecommunications regulation.

He is former deputy general counsel for the 2000 George W. Bush campaign and also served as legal adviser for former Republican FCC commissioner Harold Furchtgott-Roth.

Bush named Martin to the commission in 2001. In 2003, Martin gave a glimpse of his partisan independence in a highly publicized vote regarding local telephone competition. Martin sided with the two commission Democrats against a proposal by then-Republican chairman Michael Powell to partially deregulate dominant local telephone carriers. It was a stinging defeat for Powell and his supporters. Yet in the same proceeding, Martin also supported less regulation of Internet services.

Martin would succeed Powell as chairman in March 2005.

A la Carte and the cable crusade

Not long after taking over as chairman, Martin began pushing the cable companies to sell channels on an “a la carte” basis. Cable systems normally sell their service to customers in tiers, or program packages, at a flat rate. Each tier includes a substantial group of channels. It is a carefully calibrated arrangement between operators and programmers that has generated steady profits for decades. Martin wants cable companies to sell programming on a per-channel basis, arguing that under the current system, viewers are stuck paying for channels they do not want and may not want their children to see. But the cable companies are vigorously opposed to a la carte.

Under Powell, the FCC released a study that said a la carte pricing would raise prices for the average customer. Under Martin, a second report was released, refuting the previous study. This one said there would be “substantial consumer benefits” in an a la carte world.

“We’ve seen decreases in wireless prices, long distance calls, local calls, and international calls,” Martin said. “If you look at broadband prices, with competition primarily cable and telephone, you’ve actually seen dramatic price declines in broadband services since 2001.”

But cable prices have “skyrocketed” in the past decade, he said. “Consumers are also forced to purchase bigger and bigger bundles of channels, regardless of which ones they may actually want.”

Martin’s claims about prices are “distorted, disingenuous, and no longer relevant” in a market where voice, video, and Internet services are bundled together, said Brian Dietz, a spokesman for the National Cable and Telecommunications Association. When considering all services, prices have actually dropped, he said.

Despite Martin’s efforts and some support on Capitol Hill, a la carte pricing never became a reality during his tenure.

Anti-cable or pro-Bell?

In the modern telecommunications era, what’s bad for cable is often good for traditional telecommunications companies, such as Verizon Communications Inc. and AT&T Inc. The two industries compete directly. Cable companies are offering phone service while phone companies are offering television service, and each side is looking for any edge it can get.

Some in the cable industry say Martin has favored the traditional telecom giants over cable companies. In late 2006, Martin worked hard to push through AT&T’s buyout of BellSouth Corp., the largest telecommunications merger in history. The deal faced heavy opposition from consumer groups and smaller telephone companies who feared the re-emergence of the old Ma Bell monopoly.

Around the same time, Martin also pushed through a proposal that would help Verizon and AT&T provide television service in local markets more quickly. Democrats opposed the move as did community advocates. Cable companies sign agreements with local governments to provide service. The new FCC rules would strip away some of the bargaining power of small communities who want cable operators to provide public access channels, city lawyers said.

He kept up the pressure on cable throughout his tenure. Martin re-established a national subscribership cap on cable companies. No single operator is allowed to reach more than 30 percent of pay-television households nationwide. The rule prevents the largest cable companies, like Comcast Corp., from growing much larger.

Martin also attempted — ultimately unsuccessfully — to push through a report that showed the industry had achieved a saturation level nationally that would trigger a clause in federal law allowing for more government regulation. And he granted requests from AT&T and Verizon to shed certain regulatory requirements. For example, the FCC allowed AT&T relief from certain accounting reporting rules.

Martin denies that he favors AT&T and Verizon over the cable industry. “I’ve actually moved on just as many orders trying to facilitate and open up the voice market to cable competition as we have video markets to video competition for the telephone companies,” he said.

Open access

Among the FCC’s most important tasks is allocating radio frequencies to cell phone companies and other commercial users. In 2008, an extremely valuable portion of this radio spectrum, to be vacated by television broadcasters, was auctioned. But rather than simply sell off the spectrum to the highest bidders, Martin applied restrictions on how some of it could be used.

For instance, he applied a so-called “open access” provision, meaning the winner of one large block of the spectrum was required to allow customers to use any kind of device or software they want, as long as it did not endanger the network. Until the FCC action, the cell phone industry in the United States was a closed system. Customers were stuck using phones and software applications provided by service providers.

Martin prevailed, joined by the two commission Democrats and Republican commissioner Deborah Taylor Tate.

For a Republican like Martin to have gone down that road, said telecommunications analyst Jessica Zufolo of Medley Global Advisors, was “unprecedented.” The wireless industry opposed the rules, and ended up filing a suit in federal court seeking to get them tossed out. The suit was dropped in November.

Meanwhile, AT&T and Verizon ended up winning about 80 percent of the spectrum, which raised more questions — this time about whether the wireless industry is competitive enough.

Media ownership and network neutrality

But allocating radio spectrum was hardly the only bruising battle in which Martin engaged. To the surprise of many, in 2007 the chairman also tackled a rewrite of rules restricting media ownership — a sort of third rail of FCC politics.

After months of hearings staged across the country, Martin proposed the loosening of a single rule — the ban on newspapers owning television and broadcast stations in the largest markets. It was a modest move compared to the massive deregulation that was approved in 2003, a decision that was later largely invalidated in federal court.

In this case, Martin was joined by his two Republican colleagues in a 3-2 vote. Democratic commissioner Michael Copps said it was a decision that would “make George Orwell proud.”

Not long after, however, Martin found himself friends with the Democratic commissioners again. Comcast, the nation’s largest cable company and a major provider of high-speed Internet service, was accused of blocking “peer-to-peer” traffic on its network. Peer-to-peer software is often used to upload very large video files. Comcast’s action was in violation of the agency’s policy statement on “network neutrality,” Martin said.

In a highly publicized vote, Martin joined with the two Democrats in finding the company guilty, though no fine was issued. Comcast, which maintained that the policy statement was not enforceable, said that it had merely delayed traffic from users who pump a disproportionately high amount of data through the network, to the detriment of other customers. Comcast sued, and the case is ongoing.

There is some disagreement about the lasting significance of the FCC action — but the bottom line, most agree, is that a precedent was set allowing the agency to intervene when it determines Internet providers are operating networks in a discriminatory fashion.

Profanity debate hits high court

The decision in the Comcast court case is highly anticipated, but it is not the most high-profile FCC policy under judicial review.

A federal appeals court in June 2007 invalidated the agency’s policy on what constitutes indecent speech on the airwaves. Martin and the agency sought a review by the Supreme Court, which has taken the case. It will be the high court’s first review of broadcast indecency in more than 30 years, and it could rule as early as March.

The issue is over so-called “fleeting expletives.” The court is being asked to evaluate the agency’s position that the “F-word” and the “S-word” are inherently indecent and deserving of sanction in virtually any context. Broadcasters say the agency’s interpretation of what constitutes indecent content has been inconsistent and unconstitutional, and has chilled speech.

Martin has been a social conservative on broadcast speech issues. He has also complained about violent content on television as well as advertising he claims has contributed to an obesity epidemic among the nation’s children.

“I come from a very family-oriented background. I’m concerned about the impact the media has on our children,” he said. “We must have limits that distinguish what is appropriate from what is not appropriate in mainstream media where children are likely to be watching television.”

The investigation

While many of the debates during Martin’s tenure involved substantive disagreements, it was the chairman’s style, above all, that got him into trouble. It all seemed to come to a head at a November 2007 meeting, when he tried to present a statistical report demonstrating that the cable television industry had surpassed a subscription saturation threshold that might trigger additional government regulation.

In a highly rancorous meeting, he was accused of selective use of data, and after other commissioners cried foul, he withdrew the report.

That meeting, in addition to other complaints about how Martin ran the commission, sparked a bipartisan investigation by the House Energy and Commerce Committee’s Subcommittee on Oversight and Investigations.

Investigators spent nearly a year looking into Martin’s regime, reviewing 95 boxes of documents and conducting 73 interviews of former FCC employees. No hearings were conducted, nor was there a vote on the report. Republicans opted not to join in the ultimate findings. The report, released in December, was scathing.

Singling out the a la carte and cable subscribership issues specifically, the report pointed to instances in which the chairman “manipulated, withheld, or suppressed data, reports, and other information.” Investigators said Martin possessed a “heavy handed, opaque, and non-collegial management style” that had “created distrust, suspicion, and turmoil among the five current commissioners.”

Martin called the report “old-style politics” and said many of the specific criticisms were about problems that occurred prior to his chairmanship. And Martin said he did not handle information any differently than it had been handled under previous chairmen at the agency.

But current and previous FCC staffers say Martin could be maddening to deal with. He seemed to plot a course of action and stick to it regardless of the introduction of any new facts, they contended. “In government it’s important how you go about your decision making,” said one FCC official who asked not to be named because he is not authorized to speak to the press. “It’s not fixed from the very beginning.” With Martin, “not only was it fixed, he had a position on essentially everything, and he linked everything together in order to maximize leverage.”

Martin disputes this, pointing to the wireless auction as an example. He was initially opposed to the open-access requirement, he said, but after hearing from consumer groups and others, he changed his mind.

Last flurry falls short

Martin seemed mostly undeterred by the congressional report. In fact, he was determined to go out with a flourish as FCC chief by pushing through plans to vastly expand access to high-speed Internet service.

One initiative — to use the frequencies that exist between television channels for new wireless devices to connect to the Internet — was successful, despite relentless opposition from the broadcast lobby.

Martin also made some progress reforming the Universal Service Fund — a giant pot of money paid into by phone subscribers to subsidize phone service in rural areas. Martin wanted to reform the fund and use it to provide Internet service in those areas. In the end, he was able to get the commission to cap the growth in one part of it and convince the agency to look into comprehensive reforms.

Martin was unable, however, to secure support from either party for his boldest broadband initiative. He wanted to auction off a swath of airwaves and require a portion be used to provide free wireless broadband access to most of the population. But with time running out, President Bush’s Commerce Department and incoming chairmen of both House and Senate committees that oversee the FCC recommended that he not pursue the plan.

Legacy of openness

Looking back, Martin says he is most proud of his efforts to provide wireless broadband access to consumers and crack open those networks to competing devices and applications. His philosophy, he said, has been that “we’ll rely upon the markets to determine competition to a large extent, but we must be willing to step in when the market cannot fix itself.”

Even some of Martin’s fiercest critics say he has followed through on those commitments.

“For a deregulator, he was amazingly pro-consumer in his interventions,” said Gene Kimmelman, vice president of international affairs for Consumers Union. “Surprisingly pro-consumer. Nobody thought he was going to be like this.”

As for the controversies, Martin remains philosophical.

“I am willing to push the fact that we need to make decisions. I am willing to make very hard decisions,” he said. “And in the past, some commissioners haven’t wanted to make the difficult decisions.”